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A Guide to Trading Binary Options in the U.S.
Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?
Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.
Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.
Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.
U.S. Binary Options Explained
Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.
Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?
If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.
The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.
Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.
The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.
A Zero-Sum Game
Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.
Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.
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A trader may purchase multiple contracts if desired. Here’s another example:
- NASDAQ US Tech 100 index > $3,784 (11 a.m.).
The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.
You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.
Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.
Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)
Legal South African Binary Options and Brokers for 2020
We have seen many people in South Africa with the desire to participate on the financial market and profit from it, but never knew how.
Now, with the appearance of binary options, financial trading has become easier than ever. With binary options South Africans now have an extremely convenient way of becoming traders through online investments with possible higher payouts than they have ever hoped for.
The best thing with binary options is that you don’t have to be an expert in trading. Binary options provides a straightforward way of making money and capitalizing on your limited insight into commodities, prices, stocks, currencies and everything in-between.
The attractiveness of binary options is composed of something else too. Its nature is very similar to gambling because in a way you bet that a certain prize will come up or down. Because of this, binary options has attracted many traders that love gambling too. It is also the reason why authorities have viewed it with doubt and were reluctant to regulate it.
List of Binary Option Brokers accepting traders from South Africa:
| Rank | Broker | Offer | Trade Now / Review | |||||||||||||||||||||
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| Broker | Best For | Commissions | Account Minimum | Choose your platform | |||||||||||||||
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Spreads start as low as $1 But vary based on trading volume | $250 |
1 Minute ReviewFOREX.com is a one-stop-shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker. You can’t invest in the stock or bond market through your FOREX.com and you cannot open an account with tax advantages. The confusing pricing and margin structures may also be overwhelming for new forex traders.
Current PromotionCurrently no promotion Interactive Brokers |
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$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available | $0 |
1 Minute ReviewInteractive Brokers (IBKR) is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. With access to over 125 global markets, you can buy assets from all around the world from the comfort of your home or office. Options, futures, forex and fund trading are also available — and most traders won’t pay a commission on any purchase or sale. IBKR is geared primarily toward experienced investors. The platform offers limited assistance and can be a challenge for new users to become acclimated to. The broker’s tiered pricing strategy can also be frustrating for traders who focus on hourly or daily price movements.
Current Promotion$200 refer-a-friend bonus IG Group |
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$10 value per pip | $0 |
1 Minute ReviewIG is a comprehensive forex broker that offers full access to the currency market and support for over 80 currency pairs. The broker only offers forex trading to its U.S.-based customers, the brokerage does it spectacularly well. Novice traders will love IG’s intuitive mobile and desktop platforms, while advanced traders will revel in the platform’s selection of indicators and charting tools. Though IG could work on its customer service and fees, the broker is an asset to new forex traders and those who prefer a more streamlined interface.
Current PromotionCurrently no promotion Oanda |
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$5 per 100,000 base currency traded | $0 |
1 Minute ReviewOANDA offers commercial and standard access to the forex market, with over 70 currency pairs to trade. OANDA’s platform is comprehensive, offering a wide range of indicators and charting tools for experts as well as a simple and intuitive layout that’s perfect for beginners. You won’t find retirement savings or stock trading on OANDA — the platform doesn’t offer any type of trading beyond the forex market. However, the broker does forex trading especially well — though it could stand to offer more in the way of customer service and lower fees.
Current PromotionCurrently no promotion TD Ameritrade |
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$0 $6.95 for OTC Stocks | $0 |
1 Minute ReviewThis publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.
Current Promotion$600 cash & free trades for 60 days Overview: Trading Forex in South AfricaThe South African Rand, symbol R (ZAR) is the nation’s currency and ranks 20 th by the Bank of International Settlements with respect to daily volume and turnover among currencies traded in the forex market. South Africa’s growing economy and population of 50 million make forex trading in the country attractive to foreign-based brokers and South Africans alike. Keep in mind, however, that trading forex and having knowledge of the currency market does not involve the geographic location of the trader. Traders based in South Africa should remain aware of several elements about trading forex in South Africa are unique to the country. The first involves taxation. The South African Revenue Services (SARS) taxes trading profits for individual traders who operate within the country just like regular income. Tax rates range from 18% to 42% depending on the amount of profits generated and other factors relating to each individual’s tax status. The second involves regulation. The forex market and the financial sector, in general, are regulated by the South African Financial Sector Conduct Authority (FSCA), which took over from the previous agency, the Financial Services Board, in April of 2020. Forex brokers licensed by the FSCA are required to maintain client funds in segregated accounts, and they are also prohibited from disclosing your information to third parties. Many foreign-based brokers that accept South African clients and are regulated by other major regulating agencies also get an FSCA license. Brokers that operate without oversight from any agency should be avoided at all costs since your entire deposit could be at risk. How to Start Trading Forex in South AfricaBefore you dive into forex trading, you first and foremost need to understand the forex market. The forex market is like no other market in the world. It trades continuously throughout the trading week from 5 p.m. EST on Sunday until 5 p.m. EST on Friday. The forex market also dwarfs all other capital markets combined, with an average daily turnover of more than $5 billion. The market has its own dynamics, which depend on the relative economic circumstances particular to the countries that issue their currencies. Even if you have experience in other markets, such as the commodities or stock market , a background in the forex market is invaluable before you begin to trade. Below, you will find some preliminary steps to take before you begin trading from South Africa. Step 1: Consider Your Forex Broker NeedsThe first consideration to take into account is the need for a trustworthy broker. Next, your level of knowledge and trading experience also impact what you will need in a forex broker. If you already have considerable trading experience, you can focus on choosing a broker with adequate trading tools and a sufficiently advanced trading platform. If you have a limited amount of experience, then a broker with an excellent customer service department and educational resources would be your best bet. Whether you’re experienced or a novice, open a free demo account with any forex broker. Less-experienced traders often find that trading in a demo account gives them insight into how the forex market trades and whether they like the trading environment. If you already have experience trading, then demo trading gives you an idea of how the broker’s trading platform works, as well as an understanding of the broker’s dealing spreads and order slippage, which can occur during fast markets. Remember, forex trading carries considerable risk, especially when you choose to use a high leverage ratio since leverage lets you control a significantly larger position with your money. This magnifies profits and losses as well. Furthermore, if you leverage a position too much, an adverse move could even wipe out your entire account. Again, experience will determine your leverage needs. If you have experience, then you could probably leverage sizable positions. If you have limited experience, then you would probably be better off with a lower leverage multiple to avoid excessive losses. Also, your trading should begin with small lots, such as micro lots, since you can start trading smaller amounts and can better fine tune position sizes when you ramp up your dealing size. Step 2: Pick a Forex BrokerMake sure to carefully consider your needs before opening an account because not all forex brokerages are created equal. Once you have acquired knowledge of the forex market and determined your needs for trading, you can then proceed to pick a broker. Features to look for to find the best forex broker for your needs include: RegulationThe broker you choose should be duly regulated by the South African FSCA or another major regulator such as the U.K. Financial Conduct Authority (FCA), Cyprus Securities and Exchange Commission (CySEC) or the U.S. National Futures Association (NFA) or Commodities Futures Trading Commission (CFTC). Dealer spreadsBrokers make their money with the bid/offer spread or dealing spread. When the broker acts as a market maker, it takes the other side of your trade, but if the broker uses an electronic communications network (ECN), then several market makers’ exchange rates are used to create a quote with the best rates you can trade on. ECN firms also sometimes charge a commission on top of the dealer spread. The narrower the dealing spreads, the lower your overall transaction costs, which makes more of a difference the more often you trade. Leverage or marginThe leverage ratio consists of the position size you can hold with one unit deposited in your account. For example, the 50:1 leverage ratio commonly used by U.S. based forex brokers means that you control a position worth $50 with just $1. Leverage ratios for some brokers can be as much as 3,000:1 depending on their location and regulatory agency. Margin is the amount of money you put up to hold the trade. For example, the margin on a $100,000 position at 100:1 leverage would be $1,000. Trading platformMany forex brokers let clients use their own proprietary trading platform, though in many cases, they also offer customers NinjaTrader and/or the MetaTrader 4 and 5 trading software from MetaQuotes. If you have experience, then you would probably opt for the software package that conforms best to your needs. If you have limited experience, learning how the popular MetaTrader platforms work gives you excellent technical analysis resources and a news feed. The platforms are also very customizable and programmable if you are interested in automated trading and developing custom indicators. Customer service/educational resourcesThis feature would be an important one for inexperienced traders. Many forex brokers offer educational resources such as audio, video and articles on forex technical and fundamental analysis. The more prepared you are before trading, the more confidence you’ll have after you’ve begun. Demo accountRegardless of your choice of broker, it usually makes sense to trade in a free demo account first before committing any funds to a live account. Step 3: Open a Forex AccountSeveral forex brokerages base their operations in South Africa. Also, you can open an account with an internationally based forex broker that accepts South African clients and is regulated by the FCSA. If you are based in South Africa and want to consider a local broker, take some time to see if the broker has a good reputation with other traders on forex forums and websites. A brief selection of forex brokers based locally and abroad who accept clients from South Africa is shown below: Best Binary Options Brokers 2020:
Best Binary Options Brokers 2020: Binarium The Best Binary Options Broker 2020! Perfect Choice
Best Binary Options Brokers 2020: Binarium The Best Binary Options Broker 2020! Perfect Choice
Best Binary Options Brokers 2020: Binarium The Best Binary Options Broker 2020! Perfect Choice
Best Binary Options Brokers 2020: Binarium The Best Binary Options Broker 2020! Perfect Choice
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